VGP, a European provider of high-quality logistics and semi-industrial real estate, published a trading update for the first ten months of 2021.
Record operating performance underpinned by strong client-led demand
- €63.4 million signed and renewed lease agreements (versus €34.6 million for 10M’20), bringing total annualized rental income to €240.5 million (+29.8% year-to-date)
- 1,619,000 sqm under construction – 2.2x the level of Oct 2020 – representing €100.0 million in additional annual rent once fully built and let (currently 80.7% pre-let)
- 427,000 sqm added to the completed portfolio, now at 2.87 million sqm (98.8% let)
Expansion of land bank despite significant consumption secures future growth
- 3.17 million sqm of new land positions bought and a further 4.21 million sqm committed subject to permits
- Total land bank acquired and committed has grown to 10.49 million sqm (+37.1% year- to-date) which provides 4.69 million sqm of future lettable area
- Agreement in principle with Allianz Real Estate in respect of setting up a fourth joint venture with an investment capacity of €2.8 billion and first closing anticipated in 2022
VGP’s Chief Executive Officer, Jan Van Geet, said: “The year 2021 is turning into a record year in many respects as e-commerce demand continues to go through a structural shift and adjustments to business supply chains increase demand for warehouse space. We have achieved our best-ever new leases signed and square meters under construction whilst maintaining a high pre-let level of 80.7%.”I am most delighted that we have managed to further expand our land bank. The level of elevated construction activity consumed a significant amount of our existing land bank, yet even on a net-basis we managed to continue to increase it – since December 2020 by 2.84 million sqm – as we have managed to secure several more iconic land positions during the last few months. These include positions in Vienna, Budapest and San Sebastián, and an extension of our existing park in Bratislava, that will drive our Group’s future prospects and growth. VGP further expanded its footprint across Europe as we have acquired a first land position in Serbia and will open our first office in France, allowing us to serve more businesses and communities across Europe. We are also expanding our renewable energy business with now 145.4 MWp in solar roof projects installed or in the pipeline.”
Jan Van Geet concluded: “In addition to our outstanding operating performance, the increasing engagement with our clients is a strong proof point of our successful strategy as we remain committed to using our resources to drive sustainable solutions to support our employees, clients and the communities we serve. Our expanding balance sheet and growing capital base allow us to expand our client-led construction activities and keep income-generating assets on our balance sheet longer. Our newly announced joint venture with Allianz Real Estate will, once operational, provide us with the ability to continue to recycle our capital expenditures and re-invest into new development opportunities”
Strong lease activity reflects significant client demand
- Signed and renewed rental income of €63.4 million driven by €58.5 million of new leases (€5.9 million on behalf of the Joint Ventures) and €4.9 million of renewals (all on behalf of the Joint Ventures). Lease agreements in the amount of €3.3 million were terminated
- The new leases signed are typically long-term (increasing the weighted average lease term of the total portfolio from 8.5 years in Dec 2020 to 8.7 years today) and indexed annually to inflation
Development activities
- Delivery of 16 projects during the first ten months of 2021 adding 427,000 sqm of lettable area representing € 21.1 million of annualized leases; these buildings are 98.4% let. It is expected that circa 100,000 sqm of additional lettable area will be delivered prior to the year-end (100% pre-let)
- A total of 58 projects under construction will create 1,619,000 sqm of future lettable area representing € 100.0 million of annualised leases once fully built and let (80.7% pre-let)
- Whilst construction costs have trended upward, this has been offset through higher rental prices and lower yields
Expanding land bank with a strategic geographic spread
- During the first ten months of 2021 in total 3,165,000 sqm of land was acquired representing a development potential of 1,320,000 sqm and a further 4,205,000 sqm of land plots were committed, pending permits, which have a development potential of 1,770,000 sqm of future lettable area, bringing the total owned and committed landbank to 10,490,000 sqm (+37.1% year-to-date), supporting 4,685,000 sqm of future lettable area
- A further 3,230,000 sqm of new land plots have been identified and secured which are under due diligence and have a development potential of 1,470,000 sqm of future lettable area. This brings the land bank of owned, committed and secured to 13,720,000 sqm supporting 6,155,000 sqm of future lettable area
Expansion of the Group’s European footprint
- The Group further expanded its European footprint with the acquisition of a first land plot in Serbia, where a 1.1 million sqm land position was acquired near Belgrade Airport. The main focus will now be on the development of this location as several, primarily Western European manufacturing companies have expressed interest
- Other continental European countries, including Sweden and Greece, remain in focus for potential future expansion
Outlook
- The Group looks confidently at the last few weeks of 2021 and into 2022
- Client demand and supply constraints are supporting rents and occupancy, and underlying real estate fundamentals are expected to continue to support a strong positive near-term valuation outlook and sustained long-term demand
- Based on the strong leasing activities as reported over the last few months and indications of interest received for the coming period, development activities are expected to continue to operate at elevated levels well into 2022
- Longer-term development activities will continue to be driven by client-led demand and the ability to meet these opportunities
